DUBAI, Jan. 9 (Xinhua) -- Most banks in the six Arab states of the Gulf Cooperation Council (GCC) except Qatar will see a stabilization of their financial profiles in 2018, the Dubai branch of U.S. rating agency Standard and Poor's (S&P) said Tuesday.
After two years of "significant pressure," GCC banks will have recognized most of the impact of the softer economic cycle on their asset quality by mid-2018, S&P said in a study released by e-mail.
Founded in 1981, the GCC comprises Saudi Arabia, Qatar, the United Arab Emirates (UAE), Kuwait, Bahrain and Oman.
"GCC banks' liquidity improved in 2017, and we do not foresee a major change in 2018," wrote Mohamed Damak, credit analyst at S&P Global Ratings in Dubai.
"We think GCC banks' cost of risk will increase in 2018 because of the adoption of IFRS 9 and the higher amount of restructured and past due but not impaired loans sitting on their balance sheets," he added.
IFRS 9, an International Financial Reporting Standard (IFRS) designed by the U.S.-based International Accounting Standards Board (IASB), deals with the accounting of financial products.
"But we also think the general provisions that GCC banks have accumulated over the years will help a smooth transition to the new accounting standard," Damak added.
GCC banks' profitability will stabilize at a lower level than historically, "underpinned by an increased cost of risk and the introduction of value added tax (VAT), some of which banks will pass on to their clients," wrote Damak.
On Jan. 1, Saudi Arabia and the UAE introduced VAT for the first time, with 5 percent tax levied on most goods and services except education, healthcare and transport. The other four GCC states said they would follow the move late in 2018 or 2019.
These assessments do not include the GCC member state Qatar "where trends in asset quality will depend on how the boycott of the country evolves," said the study.
A Saudi-led pan-Arab coalition has imposed an economic and transport embargo on Qatar since last June on the ground that the Qatari government supports "extremism and terrorism," which Doha has repeated denied.
Relatively sluggish economic conditions in Qatar and the whole GCC will also keep lending growth muted, "as we do not expect oil prices to rebound significantly," the S&P study noted.
The price of oil hit a near 3-year high earlier on Tuesday as Brent climbed to over 68 U.S. dollars per barrel (159 liters).
